Here's a great write-up of ICICI, and its potential is obvious. |
The Economic Times
ICICIs ability to capitalise on its early-mover advantage, improving asset profile and improving economic prospects have been driving the stock lately. Besides, its listing on the NYSE has also helped this FI move away from its traditional association with the commodity cycle. ICICIs web-trading product is the most recent in several e-commerce products it launched through its banking arm, ICICI Bank. Beginning with more traditional services such as payment of telephone bills, account balance queries and opening a bank account, ICICI went on to provide a platform to customers for facilitate trade and payment over the internet using ICICI Banks banking products. It has clearly taken the lead and is capitalising on its first-mover advantage by introducing new products. ICICI is expected to launch a few more e-commerce related products, particularly in the area of B2B and possibly B2C.
THE new web-trading product is being launched through a new subsidiary ICICI Web Trade, marking its foray into e-broking. This is the first integrated product that enables an ICICI Bank customer to buy shares on both cash and margin basis and have it deposited in the persons current account. This is likely to provide a fair amount of free float to ICICI . This will help ICICI reduce its funding costs apart from providing additional fee income. The proposed new product underlines the benefits of an integrated universal bank structure with ICICI Bank, ICICI Securities and ICICI Ltd, all playing a central role along with ICICI Web Trade.
This product together with the payment gateway will enable the bank to take ob about one lakh online customers over the next 7 to 8 months, from the current level of 14,000. This will accelerate the process of ICICI achieving the critical mass. It will simultaneously provide ICICI with enhanced cross selling opportunities.
The launch of its credit card expected by February 2000 should further close the existing gaps in the product line and provide an even greater thrust to ICICI groups cross selling efforts.
Although e-commerce business volumes in India are currently small, one player, proactive in the field of e-commerce, is likely to grab a larger share of that business with a resulting material impact. E-commerce is a medium that ICICI can exploit to enhance its payment franchise. Compared with traditional banks that earn a substantial proportion of their fees by way of LCs and remittances, ICICIs fee income is largely dependent upon guarantees and fees. This was an area where ICICI was lagging behindbecause of regulatory constraints on FIs. The internet does provide ICICI with the opportunity to take this advantage away from traditional banks that still rely on the brick and mortar branch network.
ICICI Infotech, a fully-owned subsidiary of ICICI , began as a registrar and transfer agency. Now a transaction processing company, it serves as ICICIs investor servicing company. It has set up an integrated document imaging and management system to handle investor correspondence. It handles all processing requirements of ICICIs retail business and implements SAP and millennium projects for the parent.
With the company beginning to cater to third party assignments, ICICI is expected to develop it into a regular technology company to enable it to achieve a prominent position. ICICI has also stated that over the long term, it plans to take the company public as employees of this company have been offered stock options. There is a strong likelihood that ICICI may acquire an existing software content provider and merge it with ICICI Infotech to develop it into a regular software company. Any acquisition in this direction is likely to result in ICICI getting higher valuations.
AN important facet of ICICIs strategy is its diversification into retail banking. This results in diversity of fund-base, lower cost of funding and a strategic opportunity. ICICI is a large borrower in the wholesale market, but a retail funding franchise is crucial to sustain competitiveness in short term lending - its new focus. ICICI has also recognised that it needs to access the domestic savings pool directly, which is the key to lower costs.
Retail banking is still in its early days and ICICI believes it can provide a better value proposition to customers than several of its peers. Technology has cut costs and regulatory barriers and ICICI can now offer a wide range of products through an array of channels. Among key elements of ICICIs retail strategy is a multi-channel distribution network centred around 300-odd low-cost automated centres in top 150 to 200 cities and 100-odd branches of ICICI Bank. Another is a branding strategy backed by adequate ad spending and a wide product range to maximise the share.
The retail distribution is gaining critical mass. ICICI is fast developing retail loan products and has launched mortgage loans. It plans to nationally launch consumer durables products.
ICICI is the first institution that has put in place a compatible IT architecture and common IT strategy across group companies. When regulations permit, the operations of individual entities could smoothly integrate. Even now, there would be no loss on the cross-selling opportunity or servicing ability owing to the capability of IT systems.
NPAs are believed to have peaked during last fiscal. ICICI will be able to manage asset quality problems, going forward, due to better prospects of economic recovery and rising commodity prices, loan profile changing in favour of better quality loans and increased focus on NPL management and recoveries. Post FY 97, as part of its long-term strategy, ICICI has focussed on infrastructure and shorter term working capital loans. Incremental disbursements to manufacturing projects were cut. Proportion of manufacturing loans has fallen from 73 per cent in FY 97 to below 50 per cent in FY 99. Infrastructure and working capital loans form 51 per cent of total loans in FY 99.
HISTORICALLY, for ICICI , a low provision cover has been a cause for concern. However, in FY 99, ICICI restated its accounts under US GAAP according to which the management has substantially raised provision coverage to 49 per cent. This is comparable with the coverage for domestic banks. ICICI has recognised its investment losses under US GAAP and written off Rs 600 crore from its books. This is quite positive, and was a persistent concern under the Indian GAAP.
IMPROVEMENTS in the outlook of commodity prices and the domestic economy have helped in better valuations for the scrip. Higher disclosures through adoption of US GAAP has resulted in a more transparent balance sheet. The potential of ICICIs e-commerce foray and its emerging retail franchise is expected to provide an upside to the valuations. A good medium term buy in our perspective.